Index Funds Performance Comparison Examples

Explore practical examples comparing the performance of index funds and mutual funds.
By Jamie

Introduction

When considering investment options, index funds and mutual funds are two popular choices that cater to different investment strategies. Index funds track specific market indices, providing broad market exposure with lower fees, while mutual funds are actively managed by professionals. This article presents diverse examples of index funds performance comparison to help investors make informed decisions.

Example 1: S&P 500 Index Fund vs. Actively Managed Mutual Fund

In this example, we compare the performance of an S&P 500 index fund with an actively managed mutual fund over a five-year period.

The S&P 500 index fund has a consistent track record, reflecting the performance of the 500 largest U.S. companies.

  • S&P 500 Index Fund Performance:
    • Annualized Return: 10%
    • Total Return over 5 Years: 61.1%
  • Actively Managed Mutual Fund Performance:
    • Annualized Return: 8%
    • Total Return over 5 Years: 47.7%

In this case, the index fund outperformed the actively managed mutual fund by 13.4 percentage points over five years, showcasing the effectiveness of low-cost passive investing.

Example 2: International Index Fund vs. Global Equity Mutual Fund

This example evaluates an international index fund that tracks global markets against a global equity mutual fund.

  • International Index Fund Performance:
    • Annualized Return: 7%
    • Total Return over 5 Years: 40.3%
  • Global Equity Mutual Fund Performance:
    • Annualized Return: 5.5%
    • Total Return over 5 Years: 31.1%

The international index fund provided a significant advantage, yielding a total return difference of 9.2 percentage points. This highlights the potential benefits of investing in a low-cost index fund that captures international market performance.

Example 3: Bond Index Fund vs. Actively Managed Bond Mutual Fund

In this final example, we examine the performance of a bond index fund compared to an actively managed bond mutual fund.

  • Bond Index Fund Performance:
    • Annualized Return: 4.5%
    • Total Return over 5 Years: 24.6%
  • Actively Managed Bond Mutual Fund Performance:
    • Annualized Return: 3.5%
    • Total Return over 5 Years: 18.6%

Here, the bond index fund surpassed the actively managed bond mutual fund by 6 percentage points over the five-year period. This reinforces the notion that even in fixed-income investments, low-cost index funds can provide better performance than their actively managed counterparts.

Conclusion

These examples of index funds performance comparison illustrate the advantages of choosing index funds over actively managed mutual funds across various asset classes. Investors can benefit from lower fees, diversified exposure, and often, superior returns by opting for a passive investment strategy.